The US Department of Justice has now initiated a civil antitrust investigation into Google’s licensing deal with AI company Character.AI. This move follows concerns that the arrangement may have been structured in a way to avoid triggering formal merger scrutiny under federal regulations.
The deal in question, signed in 2023, grants Google a non-exclusive license to use Character.AI’s large language models. Alongside the agreement, Google rehired Character.AI’s co-founders Noam Shazeer and Daniel De Freitas (both former Google employees) along with several members of the startup’s research team. Although Character.AI remains an independent company and the deal does not involve a formal acquisition or an equity stake, the DOJ is examining whether the arrangement functionally mimics a merger in its impact and intent, and thereby potentially circumventing regulatory review.
It remains to be seen whether Google’s approach to partnering with Character.AI constitutes an anticompetitive practice by effectively absorbing key personnel and gaining privileged access to proprietary AI tech without going through the merger approval process. DOJ officials have reportedly raised questions about whether the agreement was deliberately designed to fall below the threshold requiring a formal antitrust filing, while still achieving control or influence over an emerging competitor.
Google has responded to the inquiry by revealing that it keeps Character.AI at arm’s length. In a statement, spokesperson Peter Schottenfels stated, “We’re excited that talent from Character.AI has joined the company but we have no ownership stake and they remain a separate company.” The company also reiterated that it is “always happy to answer any questions from regulators.”
The investigation is the latest addition to Google’s existing legal challenges. The DOJ is already pursuing two major antitrust cases against the company: one targeting its dominance in online search, and another focused on its digital advertising business. In both instances, the government has accused Google of leveraging its market power to stifle competition and maintain its lead through exclusive agreements and control of key tech.
Things have been further complicated as the relationship between Google and Character.AI has also come under legal examination in a separate wrongful death lawsuit. The mother of a 14-year-old boy has accused both companies of contributing to his suicide after he formed a disturbing attachment to a chatbot hosted on Character.AI’s platform. The chatbot, modeled after a fictional character – Daenerys Targaryen – allegedly engaged the minor in inappropriate and emotionally manipulative interactions.
According to the lawsuit, the chatbot responded to the boy’s expressions of suicidal thoughts with language that failed to dissuade him. The boy reportedly spent extended hours communicating with the bot, which allegedly presented itself as both a romantic partner and a licensed psychotherapist. The case claims the chatbot engaged in sexualized conversations and reinforced the boy’s emotional dependency, contributing to his deteriorating mental state. While Google has maintained that it only holds a licensing agreement with the startup and was not involved in creating, designing, or managing its products, US District Judge Anne Conway rejected Google’s motion to dismiss the case, which means that both Google and Character.AI are set to face a lawsuit.
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